The UK's Q4 2023 banking crisis.

[sancho panza]

Market cap currnetly £454mn,sted equity =£1.64 bn

Dowd Buckner ratio 30/1 but with serious fines inbound that could get worse.I would also expect their asset base to need more cpaital given theyre generally playing the riskier end of the loan markety

 

2023 annual reprot hints at futre problems elsewhere.They look like theyre up to theri necks in the riskier ends fo the market

https://www.closebrothers.com/annual-report-2023

Commercial

Commercial lends to small and medium-sized enterprises through our direct sales force and third party distribution channels.

Asset Finance provides commercial asset financing, hire purchase and leasing solutions for a diverse range of assets and sectors to over 28,000 customers.  Invoice and Speciality Finance works with c.6,000 small businesses to provide debt factoring, invoice discounting and asset-based lending and includes some of our smaller specialist businesses. 

Retail

Retail provides finance to individuals and businesses through a network of intermediaries.

Motor Finance provides several products at point of sale in a dealership, or online via a broker, which allow consumers to buy vehicles from over 4,200 retailers in the UK.  Premium Finance helps make insurance payments more manageable for people and businesses, by allowing them to spread the cost over fixed instalments.  It works with 1,400 insurance brokers in the UK and Ireland. 

Property

Property provides short-term residential development finance for experienced professionals through Property Finance and offers refurbishment and bridging loans through Commercial Acceptances.  Lends to c.700 professional property developers with a focus on small to medium-sized residential developments.   

 

https://www.closebrothers.com/sites/default/files/Annual Report 2021/ARA digital 2023/CBG Annual Report 2023.pdf

look at ave loan size in property.Looks like small LL's

page 4

page 206

page 217

page 224 stage 2s are down on 2022.....................

 

 

 

page 228..Lease book is quite big compared to market cap

page 234 £100mn ++ goodwill.

 

page 244

[spygirl]

@sancho panza

The Worlds Next banking crisis.

Bad property debt exceeds reserves at largest US banks

Loan loss provisions have thinned even as regulators highlight risks in commercial real estate market

https://www.ft.com/content/4114454c-a924-4929-85f4-5360b2b871c6

 

Like the Take this jobs and shove it thread, the US is ~18-24months further down the road i nterms of commercial property and banking crisis.

Banking is a game of leverage.

When it goes bad, it goes really bad.

Commercial leases ted to be longer than resi - 5y+

Every org I deal with is looking to downsize or get out of their commercial eases ASAP.

Even orgs not shutting offices are going to drcving a hard bargain.

London/SE is fucked.

 

 

 

 

 

The average reserves at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley have fallen from $1.60 to 90 cents for every dollar of commercial real estate debt on which a borrower is at least 30 days late, according to filings to the Federal Deposit Insurance Corporation.

[sancho panza]

bit tardy I know,but Ive had a lot on.Propsoing to go through the condensed results first and then have a trawl through the full report down the line.

the in depth data on laons is in the full data set and I'll dig through that tmrw if I get time.

All in all steady as she goes for Nat West

https://investors.natwestgroup.com/~/media/Files/R/RBS-IR-V2/results-center/16022024/nwg-annual-results-2023.pdf

Page 3-my coments-all looks good as you'd expect ina rising net interest margin world 3% ..ROTE up,operating profits up to £6.2bn,cost income ratio down from 55% to 51.8%

interestingly gross new mrotgage lending was £29.8bn vs £41.4bn in 2022,so shrinking the mrotgage book

CET 1 ratio 13.4% 80 basis points lower than 2022-due to RWA adjsutmetns

 

page 4-MC-intersting that 94% trasnactions done digitally.More empty CRE. 19mn customers=defintion of systemic

 

page 7 MC-intersting that total assets down £25bn,also leverage ratio down a nudge at 5%

 

page 8 CFO view-MC-operating costs up.despite cost income ration down.customers deposits dropping

 

page 10-MC-returns droipping in retail banking,interstingly impriaments(stage 3s) rising in retail

 

 

page 11-MC-profits down in private banking quite susbstantially.also net interst margin declining as more accounts became interst bearing to compete for deposits.

 

page 12-MC-here's where profits boomed up 30%,reflecting rising net interest mragin,lower stage 3s,higher net laons etc.

 

page 13-MC-losses turned around  due to forex,exit from Irish republic

 

page 14-MC-side by side

 

page 19-MC-much as banks crow about CET1 ratios,I think they need qualifying by stating that Nat Wests are based ion IRB criteria ie their own data on default and risk.

 

page 21-MC- and herein lies the rpoblem with msot banks in that their models jsut appear to utterly inadequate given they're based on 8 criteria of which 6 are heavily gamed-GDP(imputed rents to name one),UB,HPI,CRE index,CPI,woprld GDP.Only base rate and stock prices are a black and white figure.

 

Page 22-MC-slightly incredible thing going on here.despite rising interest rates Nat West stage 2s have dropped from £46bn in 2022 to £38bn 2023.Now theyve dropped total assets by £25bn,it's possible it included £8bn stage 2s ,I'm not isnide the bank we dont get access to the data.

 

Page 24-MC-it looks like msot of the drop occurred June 30 to Spet 30

 

Page 25-MC-big drop in CB assets

[Democorruptcy]

Nationwide buying Virgin Money for £2.9bn

Virgin bought Northern Rock from taxpayers for £747m. I always thought that was a joke price with Branscum being involved, jumbo jet innit.

[sancho panza]

2 hours ago, Democorruptcy said:

Nationwide buying Virgin Money for £2.9bn

Virgin bought Northern Rock from taxpayers for £747m. I always thought that was a joke price with Branscum being involved, jumbo jet innit.

I can't see the rationale for that,paying somewhere in the region of 20x net interest income for a bank with loan provisons rising like that from Novemeber(thats only 4 months agoo ffs)

I think there's more to this than meets the eye.but it is a 35% premium to yesterdays share price.

On 24/11/2023 at 00:12, sancho panza said:

https://www.msn.com/en-us/money/other/virgin-money-launches-new-150m-share-buyback-despite-rise-in-impairments/ar-AA1koQqt

Impairment losses on credit exposures jumped to £309m, up from £52m last year. The jump reflected “prudent macroeconomics,” although the bank noted “credit quality remains robust with low arrears.”

Underlying expenses of £971m were six per cent higher than last year as the bank noted “additional costs to resolve service challenges and higher levels of investment.”

Net interest income rose by £124m, up eight per cent from 2022, as the bank continued to reap the benefits of high interest rates and structural hedging.

The bank’s net interest margin (NIM) – measuring the difference between what it pays out to savers and receives in interest payments – rose 0.06 per cent to 1.91 per cent.

 

[Democorruptcy]

1 minute ago, sancho panza said:

I can't see the rationale for that,paying somewhere in the region of 20x net interest income for a bank with loan provisons rising like that from Novemeber(thats only 4 months agoo ffs)

I think there's more to this than meets the eye.but it is a 35% premium to yesterdays share price.

 

Will Nationwide honour the 5.65% Virgin Cash ISA's? Asking for a friend.

[spygirl]

https://www.bbc.co.uk/news/business-68472143

New York City deli owner Jimmy Yavrodi looks grimly out of the shop that he opened 27 years ago in one of the city's prime business districts.

"Everything is empty," he says. "I don't understand it."

From his perch on Park Avenue South, the 61-year-old sent two children to university and employed 12 people, slinging sandwiches and salads for the office workers that streamed in from nearby buildings.

These days it offers a window from which to watch what some are calling America's office "apocalypse".

The famous triangular Flatiron building nearby has been vacant since 2019. Last autumn, the owners said it would be turned into condos.

Around the corner, there's work under way on a new office fronting Madison Square Park. But its anchor tenant, IBM, is consolidating from other spaces in the city.

His next door neighbour, 360 Park Avenue South, has been empty since 2021 for redevelopment. The 20-storey building, which sold for $300m (£233m) that year, recently drew headlines after one of the owners handed over its 29% stake to one of its partners, walking away from commitments to fund $45m more in upgrades, in exchange for $1.

[sancho panza]

worhtnnopting

https://wolfstreet.com/2024/03/10/the-banks-unrealized-losses-securities-held-by-banks-bank-failures-and-the-dropping-bank-count/

The Banks: “Unrealized Losses” in Q4, Securities Held by Banks, Bank Failures, and the Dropping Bank Count

In 2024, some banks will fail. In 2023, five banks failed. In 1989, over 500 banks failed. Since 1936, there were only 5 years without bank failures. 

The Banks: “Unrealized Losses” in Q4, Securities Held by Banks, Bank Failures, and the Dropping Bank Count

by Wolf Richter • Mar 10, 2024 • 82 Comments

In 2024, some banks will fail. In 2023, five banks failed. In 1989, over 500 banks failed. Since 1936, there were only 5 years without bank failures. 

By Wolf Richter for WOLF STREET.

The rate-cut-mania-inspired plunge in longer-term yields at the end of Q4, now partially reverse, had a salubrious effect on the balance sheets of commercial banks, according to the FDIC’s quarterly bank data released on Thursday.

In Q4 2023, “unrealized losses” on securities fell by $206 billion (or by 30%) from the prior quarter, to a cumulative loss of $478 billion, or 8.8% of the $5.43 trillion in securities held by those banks. The securities are mostly Treasury securities and government-guaranteed MBS.

These unrealized losses were spread over the two accounting methods:

• HTM: Unrealized losses on the $2.50 trillion in held-to-maturity (HTM) securities fell by $116 billion from the prior quarter, to a cumulative loss of $274 billion (red in the chart below in total).
• AFS: Unrealized losses on the $2.93 trillion in available-for-sale (AFS) securities fell by $90 billion from the prior quarter to $204 billion (blue).

 

These paper losses started piling up in 2022 when the Fed began tightening its monetary policy, which pushed up bond yields. Long-term securities are particularly impacted by rising yields. Rising yields means prices fall.

So as yields rose in 2022, the market prices of those securities fell, and record-breaking unrealized losses piled up, given the massive amounts of longer-term securities that banks had put on their balance sheet during the near-0% pandemic era.

At that time, the Fed printed trillions of dollars, part of which ended up as deposits in the banking system, and the banks, unhappy with T-bill yields of near 0%, plowed this cash into longer-term securities to get a yield that was more than 0%.

Total securities on bank balance sheets.

During the pandemic money-printing era, total securities held by banks soared by $2.5 trillion, or by 57%, to $6.2 trillion at the peak in Q1 2022.

By the end of 2023, the amount had dropped to $5.43 trillion, including the uptick in Q4. And the longer-term securities in this pile have lost a lot of market value. Several factors make up the decline, including:

• The portion of securities of the collapsed banks that the FDIC sold to non-banks are no longer part of it.
• Banks have written down AFS securities to market value.
• Some securities matured
• Banks may have sold some securities.

The $5.43 trillion in securities includes securities valued at market price and securities valued at purchase price.

Banks don’t have to mark these securities to market value, but can carry them at purchase price. The difference between market value and purchase price is the “unrealized gain or loss” that the bank must disclose in its quarterly financial filings.

In theory, “unrealized losses” on securities held by banks don’t matter because at maturity, whenever that may be, banks will be paid face value, and the unrealized loss diminishes as the security nears its maturity date, and goes to zero on the maturity date.

But these disclosures of unrealized losses made uninsured depositors aware of what is going on, and they started yanking their money out of Silicon Valley Bank, Signature Bank, and First Republic – on the two fundamental principles of investing:

• He who panics first, panics best.
• After me the deluge.

But the banks couldn’t raise the cash needed to fund this outflow by selling those securities because their unrealized losses would have become realized losses, and the banks couldn’t get enough cash for them, and were insolvent.

Loans and securities with a remaining maturity of:

• 15+ years: 14.5% of total assets, roughly stable in 2023.
• 5-15 years: 14.2% of total assets, lowest since Q3 2020.
• 3-5 years: 8.4% of total assets, lowest since Q3 2022.

Bank failures.

In the FDIC’s data going back to 1936, there were only five years without failures of FDIC-insured banks. During the two free-money years of the pandemic – 2021 and 2022 – no bank failed. In 2018, no bank failed. In 2006 and 2005, no bank failed. And that was it.

In each of the remaining 88 years, some banks failed. In 1989, at the peak of the S&L Crisis and following the oil bust, 531 banks failed – and people actually went to jail over it. In 2010, during the Financial Crisis, 155 banks failed. But by then, the banks were far larger than in 1989. And in an insidious turn of events, no one went to jail; instead, bankers at the banks that got bailed out made record bonuses.

In 2023, six banks collapsed: Silicon Valley Bank, Signature Bank, First Republic, plus two very small banks in Iowa and in Kansas were taken over by the FDIC. And Silvergate Bank, with regulators breathing down its neck, agreed to self-liquidate, but since it had enough assets to cover its deposits without FDIC involvement, the FDIC doesn’t count it as a “failed bank.” So officially, there were five “failed banks” and one self-liquidation.

In 2024, some banks will fail. We pretty much know that; we just don’t know how many.  If eight banks fail, that would be on par with 2015 and 2017.

Commercial banks continue to vanish. In 2023, mergers took out 100 banks; bank failures and a self-liquidation took out 6 banks; but 6 new banks were started. At the end of 2023, the bank count was down to 4,026 commercial banks, from over 14,000 in the 1980s. As in 2023, the vast majority of banks disappeared because they got bought out by other banks, not because of bank failures.

Edited March 11 by sancho panza

[HousePriceMania]

The full chart is something to behold

 

even if you bought in 1991, you're losing...

 

[Calcutta]

1 hour ago, HousePriceMania said:

The full chart is something to behold

 

even if you bought in 1991, you're losing...

 

The fucking prov, cunts, years ago when I found out there was a guy going round the estate every Friday collecting money at extortionate interest rates I figured he was a loan shark and wanted to break his legs. Took a while for people to convince me it was a legitimate business.

Iirc that big drop around 2017 was because they sacked off the old money collectors people knew and sent random guys with a computer round to collect the money. So everyone told them to fuck off.

[Bus Stop Boxer]

So two banks have mailed me with savings rates cuts.

At the same time Moving Home With Charlie is saying loan rates are back on the up.

I'm sure its all fine.

[Democorruptcy]

Is this just in case Nationwide find something they don't like about Virgin and pull out of the deal? It seems strange for them to be paying so much over mid-swaps, when that will be Nationwide's debt after the takeover.

 

Quote

 

Virgin Money UK Plc is selling bail-in debt just as a potential takeover by Nationwide Building Society is brewing in the background.

The London-based lender is looking to raise

at least €500 million ($547 million), according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The four-year note will be callable after three years, and is senior to other types of loss-absorbing debt, like Additional Tier 1s. Initial price discussions are around 170 basis points over mid-swaps.

The offering comes after news this month that the lender reached a preliminary agreement to be bought by Nationwide, a deal that would create the UK’s second-largest home loans provider. Nationwide has higher credit ratings than Virgin Money.

“If the Nationwide bid goes ahead, as seems likely, today’s issue looks attractive,” said Simon Adamson, head of financials at CreditSights. “The risk is that the acquisition doesn’t happen, in which case it would probably widen out a bit.”

A bail-in bond is designed to impose losses on investors when a bank gets in trouble, while keeping taxpayers off the hook.

https://www.bloomberg.com/news/articles/2024-03-13/virgin-money-offers-loss-absorbing-bond-as-nationwide-deal-nears

 

 

[sancho panza]

13 minutes ago, Democorruptcy said:

Is this just in case Nationwide find something they don't like about Virgin and pull out of the deal? It seems strange for them to be paying so much over mid-swaps, when that will be Nationwide's debt after the takeover.

 

 

Alex Brummer raises a pertinent question.Does beg a further question about where he was when Nationwide was lending IO to BTL to push prices up agaisnt their emembers interests

Should Nationwide be using members' money to buy another bank, asks ALEX BRUMMER | This is Money

Should Nationwide be using members' money to buy another bank, asks ALEX BRUMMER

The biggest immediate winner from Nationwide’s £2.9billion offer for Virgin Money will be Sir Richard Branson.

All of this has been terrific for the banks which have been able to soft-soap shareholders through share buybacks and higher dividends. As a mutual, Nationwide doesn’t do direct distributions.

Instead, it has delivered mutual benefits by offering better mortgage deals, bonuses for savers and last year 3.4million members received a ‘fairer share’ of £100.

The good times also mean that chief executive Debbie Crosbie has been able to invest in a modern rebranding and has made a sacred promise to put a hold on any branch closures until 2026.

Clearly all of this shows the value of mutuality. But there are serious questions to be asked as to whether digging into reserves technically owned by members to buy another bank – one which the chief executive knows well from her previous roles – is a great use of members’ money.

 

Certainly, they deserve a clear justification as to the benefits.

Arguably at a time when household budgets are under stress they might prefer another fairer share distribution or a discount on their home loan charges.

Indeed, in the aftermath of the great financial crisis it honourably became a rescuer of last resort for building societies in difficulty.

Virgin Money is different. It is a publicly quoted company that has been run on a very different basis.

[sancho panza]

Haliofax derisking mrotgage book

 

watch what they do etc...

Halifax to impose new 70-year age limit on thousands of mortgage borrowers (telegraph.co.uk)

Halifax is imposing a new 70-year age limit on thousands of homebuyers as banks seek to rein in risky mortgage lending.

The lender is reducing the maximum age at which it will allow many borrowers to say they intend to retire from 75 to 70 – meaning that in many cases it will not lend to someone older than this limit.

It risks forcing thousands of borrowers to reduce the length of their terms in future, increasing their monthly mortgage payments as a result. The changes are likely to particularly affect people in their 40s and 50s seeking to maximise the length of their loan.

Darryl Dhoffer, an adviser at The Mortgage Expert, said: “Halifax appears to be tightening the screws on the very borrowers who need them the most.”The change comes after the bank increased the working-age limit to 75 last summer.

Borrowing longer than this limit requires extensive checks on whether a future pension will cover the costs.

Halifax’s decision means in many cases, the bank will only accept that someone can work until the age of 70, reducing the maximum amount of time they can borrow money for by five years.

The changes apply to those who are increasing the size of their mortgage, or who have relatively weak credit ratings. If these people want to borrow past 70, they will have to prove they can cover their costs with a pension.

Buyers have increasingly stretched out the length of their mortgage in an effort to bring down repayments, in the face of both high property prices and rising interest rates.

Figures from industry group UK Finance show almost one in four first-time buyers are borrowing for more than 35 years.

[Democorruptcy]

2 hours ago, sancho panza said:

Haliofax derisking mrotgage book

 

watch what they do etc...

Halifax to impose new 70-year age limit on thousands of mortgage borrowers (telegraph.co.uk)

Halifax is imposing a new 70-year age limit on thousands of homebuyers as banks seek to rein in risky mortgage lending.

The lender is reducing the maximum age at which it will allow many borrowers to say they intend to retire from 75 to 70 – meaning that in many cases it will not lend to someone older than this limit.

It risks forcing thousands of borrowers to reduce the length of their terms in future, increasing their monthly mortgage payments as a result. The changes are likely to particularly affect people in their 40s and 50s seeking to maximise the length of their loan.

Darryl Dhoffer, an adviser at The Mortgage Expert, said: “Halifax appears to be tightening the screws on the very borrowers who need them the most.”The change comes after the bank increased the working-age limit to 75 last summer.

Borrowing longer than this limit requires extensive checks on whether a future pension will cover the costs.

Halifax’s decision means in many cases, the bank will only accept that someone can work until the age of 70, reducing the maximum amount of time they can borrow money for by five years.

The changes apply to those who are increasing the size of their mortgage, or who have relatively weak credit ratings. If these people want to borrow past 70, they will have to prove they can cover their costs with a pension.

Buyers have increasingly stretched out the length of their mortgage in an effort to bring down repayments, in the face of both high property prices and rising interest rates.

Figures from industry group UK Finance show almost one in four first-time buyers are borrowing for more than 35 years.

That could be connected to the budget and the intention to remove NICs. It's fairly obvious that leads to the state pension being means tested in the future as there's no longer a number of qualifying years to get one. Means testing and home ownership might not sit well together. Maybe the asset has to be sold?

[spygirl]

23 hours ago, sancho panza said:

Haliofax derisking mrotgage book

 

watch what they do etc...

Halifax to impose new 70-year age limit on thousands of mortgage borrowers (telegraph.co.uk)

Halifax is imposing a new 70-year age limit on thousands of homebuyers as banks seek to rein in risky mortgage lending.

The lender is reducing the maximum age at which it will allow many borrowers to say they intend to retire from 75 to 70 – meaning that in many cases it will not lend to someone older than this limit.

It risks forcing thousands of borrowers to reduce the length of their terms in future, increasing their monthly mortgage payments as a result. The changes are likely to particularly affect people in their 40s and 50s seeking to maximise the length of their loan.

Darryl Dhoffer, an adviser at The Mortgage Expert, said: “Halifax appears to be tightening the screws on the very borrowers who need them the most.”The change comes after the bank increased the working-age limit to 75 last summer.

Borrowing longer than this limit requires extensive checks on whether a future pension will cover the costs.

Halifax’s decision means in many cases, the bank will only accept that someone can work until the age of 70, reducing the maximum amount of time they can borrow money for by five years.

The changes apply to those who are increasing the size of their mortgage, or who have relatively weak credit ratings. If these people want to borrow past 70, they will have to prove they can cover their costs with a pension.

Buyers have increasingly stretched out the length of their mortgage in an effort to bring down repayments, in the face of both high property prices and rising interest rates.

Figures from industry group UK Finance show almost one in four first-time buyers are borrowing for more than 35 years.

I have vague memories of people not being able to have an active mortgage after the age of 60.

Mid 80sish.

I remember being 'issues' where one of the a couple was taking on a mortgage at 40+ and having to go for shorter mortgage.

 

[sancho panza]

Banking crisis risk hasnt gone away

it's a matter of 'when' not 'if' imho

https://www.telegraph.co.uk/business/2024/04/08/shadow-bank-lending-risks-financial-crisis-warns-imf/

‘Shadow bank’ lending risks triggering new financial crisis, warns IMF

Caution comes after Bank of England launched review into risks posed by private equity

Risky lending by “shadow banks” threatens to trigger a new financial crisis, the International Monetary Fund (IMF) has warned.

The Washington-based organisation said there were “systemic risks” posed by the $2.1 trillion “opaque world of private credit”, which has boomed in recent years against a backdrop of record low interest rates.

Companies deemed too large or risky for commercial banks and too small to float their shares on the stock market have increasingly turned to non-bank funds to borrow money quickly, flexibly and confidentially.

However, regulation in this corner of financial markets is relatively lax and the IMF said a severe economic downturn could quickly expose vulnerabilities.

“In a severe downturn, credit quality could deteriorate sharply, spurring defaults and significant losses,” the IMF said in its latest Financial Stability Report.

The impact would be felt beyond just private lenders as a growing share of public and private pension funds are pouring money into these private funds.

The IMF’s warning comes just weeks after the Bank of England launched a review into financial stability risks posed by private equity.

Threadneedle Street is concerned about the value of assets controlled by private equity companies, how much money has been lent against them and how these loans are linked back to commercial banks and investors.

Some of Britain’s biggest companies are now backed by the private equity industry, including the supermarkets Asda and Morrisons.

While private credit differs from private equity, the IMF noted that “growth in private credit has followed the rise in private equity”.

It said private equity firms were involved in around 70pc of private credit deals. Some of the biggest “shadow bank” lenders include funds run by Apollo, Blackstone, KKR and Carlyle Group, which have driven some of the biggest private equity deals over the past decade.

The IMF said the immediate financial stability risks from private credit appeared to be “limited”. However, the nature of these risks is unclear.

A separate IMF report warned that the Bank of England risked leaving interest rates too high for too long, inflicting unnecessary damage on the economy.

It noted that the high share of UK homeowners who have borrowed at fixed rates left many exposed to a mortgage shock when their deals run out. This could trigger a sudden drop in consumer spending, which would be damaging for the economy.

The IMF said: “Most central banks have made significant progress toward their inflation targets. It could follow from the discussion that if transmission is weak, erring on the side of too much tightening is always less costly. 

“However, overtightening, or leaving rates higher for longer, could nevertheless be a greater risk now.”

The UK now has one of the highest shares of people on fixed-rate mortgages in the world, which has helped to delay the pain of higher rates for millions of borrowers.

The share of British households who have opted to fix their borrowing costs – usually for two or five years – has climbed from around a third in 2011 to almost 90pc at the end of 2022, according to the IMF.

Around 1.6 million mortgage holders are scheduled to come off cheap fixed rate deals over the next 12 months and roll on to higher rates. The Bank has raised interest rates from 0.1pc at the end of 2021 to 5.25pc last year.

The IMF said policymakers around the world could be underestimating the impact of this wave of higher mortgage rates on the economy.

It said: “Over time, and as rates on these mortgages reset, monetary policy transmission could suddenly turn more effective and thereby depress consumption. Although central banks already incorporate this possibility in their decisions, the effects on consumption could still be larger than expected. 

“Financial instability could also follow if defaults rise abruptly.”

[sancho panza]

Wolf lays out the details fo where the CRE lsoses will hit.

Small abmks hold disporportionate amoutn fo CRE debt.

https://wolfstreet.com/2024/04/13/banks-exposure-to-cre-loans-by-bank-size/

Banks’ Exposure to CRE Loans by Bank Size

by Wolf Richter • Apr 13, 2024 • 77 Comments

When CRE hits investors, fine, they were paid to take those risks. But we’re a little more squeamish when it comes to banks.

Commercial Real Estate loans amount to about $5 trillion. Not all CRE sectors are in trouble. At one end of the spectrum: Industrial is still in good shape. At the other end of the spectrum: office is in terrible shape. Somewhere in the middle: There have been some big defaults in multifamily, but the sector is in much better shape than office.

The 4,026 or so FDIC-insured commercial banks held $2.4 trillion of CRE loans at the end of 2023, according to FDIC data, amounting to roughly 10% of their total assets of $23.7 trillion. So banks hold a little less than half of CRE loans, and those loans are about 10% of their total assets.

The remaining CRE debt is held by investors via commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLOs), mortgage REITs, PE firms, insurance companies, pension funds, foreign banks that piled into US CRE, and a big portion is held by US taxpayers who are on the hook for 55% of the $2 trillion in multifamily CRE loans. We’ve discussed this debacle for investors over the past two years, and we’ve documented numerous massive blowups that left us with the suspicion that banks securitized the riskiest and worst CRE loans and sold the CMBS to investors.

 

When CRE losses hit investors, fine, they were paid interest to take those risks, so it didn’t work out, and OK. Everyone acknowledges this risk was part of the deal.

But everyone gets squeamish when it comes to the banks because they’re like financial utilities for the economy, and they’re all tightly woven together into the US banking system, making it fertile grounds for contagion, and they’re by nature risky utilities (they borrow short and lend long). Three regional banks collapsed in 2023, but none of them because of bad CRE loans – or bad loans of any type. Another one was forced to self-liquidate and didn’t require FDIC deposit insurance. In addition, two tiny banks collapsed without making any ripples.

Banks’ exposure to CRE as % of their loan book, by size of bank.

A higher percentage means banks are specialized in CRE loans and are more heavily exposed to CRE problems. A lower percentage means banks hold many other types of loans, and CRE is only a small part of their total loan book (CRE loan data via Lipper Alpha):

Large banks: 6% of their loans are CRE loans. Each of these banks has over $250 billion in assets. There are only 14 of them, and they hold 56% of total banking assets. It’s those few big banks that matter to the financial system. If one of them fails, it can shake things up. If several fail, it’ll rattle a lot of nerves. On average, only 6% of their loans are CRE loans. If they take big losses on their CRE loans, it will dent their earnings and hurt their stocks, but CRE losses alone won’t topple the bank; they would have to have big other issues.

Mid-size banks: 17% of their loans are CRE loans.  These banks have between $10 billion and $250 billion in assets. There are 121 of these banks, 16 of them have over $100 billion in assets. If several of those bigger 16 topple, there would be some ripples across the financial system.  And we would notice it and write about it.

Small banks: 31% of their loans are CRE loans. These banks have between $1 billion to $10 billion in assets. There are about 700 of these banks. 31% of the loan book being CRE is huge exposure – with some banks being more exposed and others less exposed. CRE losses will likely pull the rug out from under some of those small banks over the next few years. And we’ll notice, but we’ll probably not write about it.

Tiny banks: 28% of their loans are CRE loans. These banks have between $100 million and $1 billion in assets. As a group, they’re hugely exposed to CRE, and there are thousands of those banks, and some of them, maybe dozens of them, will fail over the next few years. But these bank failures won’t even make ripples across the financial system. Locals will notice, they will lose perhaps the only bank in their small town, and that’s a problem for the town, but it’s not a problem for the financial system. If such a tiny bank fails, we won’t write about it just like we didn’t write about the two tiny banks that failed in 2023.

To the overall banking system, it doesn’t really matter if 50 tiny banks collapse, of the 4,026 commercial banks in the US, most of which are tiny banks. The big banks do matter, but they’re much less exposed to CRE. As their CRE loans go sour, they dent earnings and whack down stocks, but CRE alone won’t pull the rug out from under those big banks.

[HousePriceMania]

@sancho panza do you think we'll see a banking crisis this year ?

[sancho panza]

On 01/04/2023 at 00:15, sancho panza said:

I've held off starting a thread like this for years due to the work involved and the fact that the crisis didn't seem to be imminent.No point discussing a banking collapse when the ponzi has years to run.

@HousePriceMania as per the first post,I thought with the SVB and Signature bank failures in March 23 that we had game on.

I use puts to short and the simple reality is that I haevn't put any money on yet.

I think the set up is there,particuarly with CRE in the US and here in the UK,UK BTL also looks structurally exposed but again is surviving for5 now.

Whats impressed me the msot is how the 33% of occupiers who are mrotaged have managed quite heavy rising rates without stage 3's rising rapidly.

That likely measns forebearance is playing a part in keeping the plates spinning.

I will psot on here whne I put moeny on it and as soon as I think the set up is right I will.

Whats interesting is that in the run up to peak bank failures during GFC was 2010 but obviously the big money was made 08 if you were short.

 

https://www.forbes.com/advisor/banking/list-of-failed-banks/

Are Bank Failures Common?

While bank failures are relatively common, they’ve become a rarity in recent years.

Year	Bank Failures
2023	5
2022	0
2021	0
2020	4
2019	4
2018	0
2017	8
2016	5
2015	8
2014	18
2013	24
2012	51
2011	92
2010	157
2009	140
2008	25
2007	3
2006	0
2005	0

Edited April 17 by sancho panza

[HousePriceMania]

I dont think the forbearance will ever end, they have gone too far down the rabbit hole now.

The banks wont be allowed to fail ( though I think hair cuts this time rather than 0% rates and QE ) but these cunts are literally in charge of the government/country.  The people in the know are all asseted up and wont give a fuck that money is becoming worthless.

 

 

Edited April 17 by HousePriceMania

[HousePriceMania]

Another bank buy out buy a B.S.
 

 

[ashestoashes]

3 hours ago, HousePriceMania said:

Another bank buy out buy a B.S.
 

 

yup

We’re writing to let you know that Coventry Building Society has reached an agreement of key terms with the owners of The Co‑operative Bank to buy the Bank subject to agreeing the contract and gaining approval from the financial services regulators.

[HousePriceMania]

14 minutes ago, ashestoashes said:

yup

We’re writing to let you know that Coventry Building Society has reached an agreement of key terms with the owners of The Co‑operative Bank to buy the Bank subject to agreeing the contract and gaining approval from the financial services regulators.

Again, without a members vote.

Something is going on.

[ashestoashes]

3 minutes ago, HousePriceMania said:

Again, without a members vote.

Something is going on.

hope my 6.75% loyalty regular saver is ok